Chapter 17 International Trade

Exports

Goods and services that a country produces and then sells to other nations -International trade is important to all nations even a country as large as the United States -Most countries export and import goods. However in the last 20 years services are being bought and sold in increasing numbers

Import

Goods and services that one country receives from other countries -In 2001 that amounted to 1.486 billion dollars -Nations trade because they believe the products they received are worth more than the ones they give up -Without international trade, many products would not be available on the world market -International trade involves necessities and non-necessities

Basis for Trade

It may be cheaper for a country to import a product, than to manufacture it

International Trade

-The key to trade whether among people, states, or countries is specialization -Different regions of a country specialize in certain economic activities in much the same way

Arguments for Protection

1) National defense 2) Promoting infant industries -New or emerging industries that should be protected from foreign competition 3) Protecting domestic jobs -tariffs and quotas protect domestic jobs from cheap foreign labor 4) Keeps the money at home 5) Balance of payments -difference between money paid out and money received

Quota

A limit placed on the amount of a product that can be imported -foreign goods sometimes cost so little that tariffs and quotas may still not protect domestic markets

Revenue Tariff

A tariff high enough to generate revenue for the government without actually prohibiting imports -Before 1913, it was the main source of revenue for the federal government (16th amendment gave congress the power to tax incomes)

Protective Tariff

A tariff huh enough to protect less efficient domestic industries (labor costs usually come into play)

Tariff

A tax placed on imports to raise their price in the domestic market

Protectionists

Favor trade barriers that protect domestic industries

Barriers to International Trade

Some people object to international trade because it can displace selected industries and groups of workers in the U.S.

Comparative Advantage

The ability to produce a product relatively more efficient, or at a lower opportunity cost -The concept of comparative advantage is based on the assumption that everyone will be better off producing the products they produce relatively best -Specialization and trade increase the total world output

Absolute Advantage

When a country is able to produce more of a given product than another country.(Ex. Honduras produces 85% of the World's bananas. Colombia and Brazil produce 72% of the world's coffee)